“Club of Knowledge Hunters”

Retail boom, a boon for farmers?

Posted by superstar23 on September 28, 2008

Indian agriculture is facing a policy paradox. It has been primarily characterised as a means of subsistence, small investments, small return and a source of livelihood for the rural households.

Till recent past element of commerce was limited to a few commercial crops such as jute, sugarcane, cotton etc to provide raw material for particular industries rather than fulfilling the household needs.

Whereas India’s agricultural policy is still rooted in the goal of self-sufficiency in grains, consumption patterns are changing fast towards high value agricultural products such as fruits and vegetables, livestock products and fish.

The policy environment is lagging behind the structural change occurring in India’s consumption and production basket. To develop the agriculture on commercial lines to achieve its accelerated growth rates, the issues of profitability is coming upfront.

Hence, the favourable term of trade with effective market access is basic. This would be conducive to capitalise on resources potential based production through regionally differentiated production strategies to meet the growing and fast changing market demand.

For demand driven and market oriented production, timely backstopping of desired quality of inputs and appropriate technology to start with and necessary mechanism to ensure its availability in the desired form to the consumer ending with finished products, is required to be harmonised and in a continuum.

The super market revolution has been underway in developing countries. Supermarkets refers to all modern retail which includes chain stores of various formats such as supermarket, hypermarket and convenience and neighborhood stores have now gone well beyond the initial upper and middle class clientele to reach the mass market.

Until recently, super markets were not a major form of food retailing in developing countries and confined to only niche markets for higher income consumers in major urban markets.

It is a two-edged sword. On the one hand it can lower food prices for consumers and create opportunities for farmers, processors to gain access to quality differentiated food markets and raise income. On the other hand, it can create challenges for small retailers, farmers and processors who are not equipped to meet the new competition and requirements of super markets. Government has to put in place a number of policies to help both traditional retailers and small farmers pursue policies of competitiveness in the era of supermarket revolutions.

In developing countries the process of super marketisation started in Latin America in early 1990s and by now such markets accounts for more than 50 per cent of retail food sales in many countries of the globe. This is being perceived as the first wave of super marketisation. The South-East Asian supermarkets followed the suit about five to seven years later and now supermarkets are registering rapid growth in many East Asian countries. A third wave has swept across East-Central Europe, and Africa led by South Africa. At present, West Africa, China and India are witnessing a supermarket revolution.


A paradigm shift is occurring in the retail sector of the Indian economy. This new paradigm of market orientation to suit small and marginal farmers is a real challenge to the agricultural research system. Indian retail industry, which is worth $300 billion in 2006, is likely to reach $427 billion by 2010 and to $637 billion by 2015. Merely 3 per cent of retail in India is organised.

Visible retail revolution is on in India. In a short span of two years, retailing has exploded on the Indian firmament as a humungous business opportunity. Organised retailing has come some way from what it was say as recent as five years ago, but there is a firm belief that: It is only the beginning and the best is yet to come.

Currently, India is one of the top five global destinations for retail investment with more than 21 million people employed in this sector which contribute 13 per cent of the nation’s GDP. In such a scenario food retailing cannot be far behind which account for nearly 60 per cent of the total and that too almost entirely in what is described as unorganised sector.

This is where organised retail has perceived an opportunity. India’s food sector is set to expand exponentially in the coming years. Given the existing low per capita consumption, every increase in income will first translate into higher demand for food until the time basic food needs are satisfied.

Increasing urbanisation and growth of small towns throughout the country coupled with increased income level, diversified food habits, growth of working women outside home, willingness to pay for better quality and need for convenience drive demand for processed, ready-to-cook or ready-to-eat, convenience foods, packaged and preferably branded.


The traditional model of farm plucked vegetables reaching the market and sold the same day by the petty traders had to slowly give way to sophisticated storage, handling and retailing of these commodities over few days by organised market chains. The initiatives by large corporates are also increasing their outlets by connecting to farmers directly. With appropriate contacting mechanisms stakeholders can also connect to processing industries and fast food chain such as McDonalds, KFC, Pizza Hut and Narulas which continue to expand their operations in India.

Corporates know that the Indian agriculture sector is a potential goldmine that has not been tapped till now and farmers have a lot of reasons to be happy with the corporate entry into agriculture scenario. With plenty of money and manpower’s at their disposal, these corporate Goliaths are attempting to give a new meaning to Indian agriculture.

Many of these corporate are making a beeline to farmers’ doorstep for buying their produce, something, which the poor farmers have never experienced so far. All the times it was the farmers who had to take his produce to the market and search for marketing channels. Corporate entry into agriculture could find an answer that has been plaguing the farm sector for long — proper and affordable price to the farmers. Challenges arising out of fragmented landholdings, limited credit flows and uncertain market conditions would be addressed to a large extent. Importantly, the system will force stakeholders move towards quality related pricing something our country lacks.


All these improvements are more than what the government has been able to offer to the agriculture sector. In fact the governmental cooperative movement which was started with the similar idea of procuring, transporting and retailing the produce has been a major disaster with red tape and political interferences clogging its functioning. By moving in and taking over the supply chain in agriculture, corporate India is also breaking the stronghold of middlemen and loan sharks who have been exploiting the farmers.

But the litmus test is whether this new trend is relieving the present constraints that the farmers face in effectively linking with regional, domestic and global markets. How is private sector driving smallholders’ participation in retail food markets? The common perception that private sector will exploit smallholders is slowly changing with the successful demonstration of several corporations that are working with small holders to connect them with domestic and world market.


As supermarkets spread and their market share grows, the market share of traditional retailers declines. Modern retail can also create jobs which are better paid with better conditions. But it requires more skill and education than employment in the informal retail sector. How well the government and the private sector raise the skills of workers in the distribution sector will determine whether the transition has poverty creating or poverty alleviating effects.


Retailing in India is subjected to a plethora of laws/regulations at the central, state and local/municipal levels. There is lack of specific legislation controlling distribution trade and there is no nodal ministry to control and guide the operation of this sector. This has resulted in delays owing to multiple clearance procedures. Single window clearance scheme should be set up. The elimination of market intermediaries will benefit both the producers and the consumers. Farmers selling to retail companies receive higher prices and hence take care of quality aspect. Simultaneously, this also helps to reduce wastage of perishable commodities which is as much as 30 to 40 per cent in case of fruits and vegetables.


As recommended by Dr MS Swaminathan, chairman of National Commission for Farmers, the Special Agricultural Zones (SAZs) should be established to sustain and expand the retail boom from farm to market. SAZs should aim to bring about a small farm management revolution which can help improve the productivity, profitability and sustainability of the major farming systems of the country. Special incentive and support for conservation of farming, timely supply of credit, effective insurance system and above all post-harvest infrastructure for value addition to primary produce, biomass utilisation and producer oriented marketing must be given to farm families in the SAZs.

The major purposes of such SAZs are: to conserve prime farm land for agriculture and to bridge the prevailing yield gap; To realize the untapped production potential of rainfed areas; To promote organic farming zones; To ensure National Nutrition Security and Food Sovereignty; To bring about a system approach with concurrent attention-consumption-commerce chain; To strengthen the supply chain from farm to the market and to sustain and expand the retail boom. As in the case of SEZ, special incentives and logistic support must be given to farm families in the SAZ areas. These should include support for conservation of farming, timely support for credit, effective insurance system and above all post-harvest infrastructure for vale addition to primary produce, biomass utilization and producer oriented marketing.

There is another land war involving small and marginal farmers possessing fertile agricultural land and those who wish to purchase for setting up SEZs. The answer to this question is not just to persuade small farmers to quit farming by selling their land, however attractive the prevailing price may be. Most of the small farmers after selling their lands will become just landless labourers after a year or two when the money gets exhausted. Therefore, any exit policy for small farmers through land markets must be accompanied by an entry policy to provide them alternative and sustainable non-farm livelihoods — a real contribution of the retail sector. Failure to do will swell the numbers of landless labourers’ families with disastrous social consequences.

This is where the agro processing and retail sector can make a contribution by providing opportunities for skilled non-farm employment. Sustainable food security with home grown food has three additional benefits. First it provides sustainable livelihoods, secondly, it protects our national sovereignty in foreign policy and thirdly, it diminishes the rate of inflation by creating a balance between demand and supply.

Moreover, adoption of integrated agriculture is the major source of job-led economic growth which in a population rich country like India would result in joyless growth. Therefore, SAZs should be promoted on the model of SEZs. Identify in every state areas with a high untapped agricultural potential both under irrigated and rainfed conditions and develop them into SAZs. Introduce with the help of farmers’ organisations and gram sabhas, as well as private sector, integrated package of technology, services, techno-infrastructure and producer-oriented trade; introduce common service centres, including Gyan Chaupals based on CSC programme of the Department of Information Technology with provision for providing key centralised services to support decentralised production. Spread a quality literacy programme, including knowledge of sanitary and phytosanitary measures and codex alimentarius standards of food security.


Currently, a heated debate is on whether or not; Foreign Direct Investment (FDI) in retailing is desirable. FDI is not allowed in retailing. FDI, however, in a single brand is permissible. It is also allowed only in franchising and in commission agent services. The Foreign Investment Promotion Board on a case-by-case basis approves the FDI proposal in the wholesale trade services. Many reputed foreign retailers with deep pockets and deeper market knowledge are waiting in the wings to enter the country. Restriction on FDI may constrain the growth of organised retailing.

Restriction of FDI in food retailing is on account of the apprehension that entry of multinationals will displace millions of workers in the unorganized retailing, which needs thorough examination.

FDI in retailing will expedite the process of development of modern formats in India, bring in technical know-how, reduce inefficiency in the supply chain, increase productivity, help achieve international quality standards and improve the quality of employment and services offered to the consumers. How long the policy barriers will hold remains to be seen. India may well be the final frontier for the global retail giants to conquer.


Storage is the biggest challenge because the warehousing facilities in India are totally inadequate. Temperature control and inventory management are two issues that need focused attention. Transportation is another challenge. We need inexpensive, efficient and specific movement including appropriate material handling equipments, cold chains and refrigerated vans. Segmentation based on class of buyers, packaging and store display are areas that deserve attention. Public policy has an increasing role to play in effectively using retail agricultural markets to reduce poverty in rural areas. Public investments in rural roads connecting smallholders in remote hinterlands to market centers can extend the benefits of retail food boom beyond peri-urban areas.


Public private partnership can create further competition among the retailers and reduce the welfare losses of the traditional players such as petty traders and street vendors of fresh produce markets. Traditional retailers and street vendors need to be encouraged to form cooperatives from the existing retailers associations. They should be given appropriate training to organise themselves and start retail stores which can effectively compete with the corporate sectors.

Public policy has an increasing role to play in effectively using retail food markets to reduce poverty in rural areas. Following policy and institutional options need immediate attention: Public investments in rural roads, information technology connecting small holders in remote hinterlands to market centres and agricultural research and development leading to improved technologies for farmers, can extend the benefit of retail food boom beyond peri-urban areas; infrastructure and cold storage development of storing, sorting and distribution of fresh goods can bring together small holders in the forms of cooperative and producers associations; facilitating formation of producers associations will induce more private companies to deal with small and medium scale farmers. Contract farming with marketing firms require policy regulations and appropriate legislations to protect small holder as well as private investors.

Multi-stakeholder Contract Farming Regulatory Authority should be established to ensure mutually beneficial partnership between the growers and mega retail trade. Authority should ensure equitable social bargain in this sector and can act as a watchdog body.

source :- commodity online


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